Folks, below is exactly what i have being chanting as a way forward in the ownership of the infrastructure;
” The Kenya Government will have a 40 per cent holding in the project, Etisalat 20% and the remaining 40% will go to investors in the East African region. The Government has said it will organise an IPO on the Kenyan Stock Exchange. Several Kenyan companies have expressed interest and one said that the Government had told them it would “guarantee their loan”. The details of the finance package have not yet been settled but it is unclear where the Kenyan Government will raise its 40% from. Will the World Bank simply shift a portion of its EASSy funding to the new project as many think likely?”
NB; From this week’s Balancing Act, full story below for your pleasure courtesy of Russell Southwood.
Thank God the Kenyans are experimenting with this approach where government owns part, private sector owns part, educational institutions should also own part, CSO owns part through IPO on the stock market.
The Kenyan government can actually raise the 40% from government bonds and am not an expert on the stock market discipline of shares or bonds but this is where the financial experts need to come out with innovative solutions that can help raise much of this money locally – it is possible.
You Kenyans are showing the way and even it it does not work you would be know for showing us how this model is not workable and then we can try another. We Africans must try new ways of doing these things and make our own mistakes and find our own solutions to our problems but learn to avoid the mistakes of the Americans, Europeans and Asians. Thank God for this BOLD move, it is commendable.
I dont mean to make my blog Kenya praise church but it is about time that we applaude bold initiatives and sing the praise of those who are making an attempt at leadership in these times.
TOP STORY: KENYA BEGINS THE COUNTDOWN TO CHEAP INTERNATIONAL FIBRE
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It’s like waiting for a matatu. You wait for ages and none come along. But just when you’re about to give up hope, three come along at the same time, all trying to come to a screaming halt in front of you. Kenya now has three (or more) potential international fibre projects that could be complete within 12 months. Each one is loudly proclaiming that it will
deliver cheap international bandwidth. Russell Southwood took the temperature in the market last week about what the impact of this bandwidth will be upon the market.
The Kenya Government has signed an MOU to build a fibre link to Fujairah in the UAE currently costed at Ksh5.7 billion. The construction and supply contract will be awarded early next year and the project, dubbed The East African Marine System (Teams), will be ready by November, according to a joint statement issued by both parties from Dubai. Many
in the sector believe that it will be more like 19 months or more before completion.
The Kenya Government will have a 40 per cent holding in the project, Etisalat 20% and the remaining 40% will go to investors in the East African region. The Government has said it will organise an IPO on the Kenyan Stock Exchange. Several Kenyan companies have expressed interest and one said that the Government had told them it would “guarantee their loan”. The details of the finance package have not yet been settled but it is unclear where the Kenyan Government will raise its 40% from. Will the World Bank simply shift a portion of its EASSy funding to the new
project as many think likely?
The Government’s commitment to a 12 month schedule is a bold move but one that must lay them open to a certain amount of scepticism. The tender for expressions of interest was only issued 2 weeks ago and Government timetabling is notoriously slow compared to the private sector. Apparently the Private Secretary has been telling interested
parties that the Government wants prices comparable to those to be found in India in 12 months time. This benchmark has been set in order that Kenya will be able to compete in the international outsourcing market.
Apparently a number of interested parties said that they would put up all the money to build it if they could have a monopoly and he sent them away disappointed. But more worryingly one interested party told us that it could only get involved if it also allowed Telkom Kenya to be a shareholder.
The next international fibre project is KDN’s and it has now signed its contract with Flag Telecom. Its link from Mombasa will terminate in an undersea junction in international waters off of the Yemen. It says the link will be fully operational in the first quarter of 2008, just 15 months away. The company believes that it will come to market with capacity at $500 per mbps pm but that the price of bandwidth will go up to those wanting to invest as time passes. In other words, for those who commit early prices will be lowest and for those who come in late, prices will go higher. It also stresses that its landing station at Mombasa will allow other carriers to co-locate there charging only electricity and services at cost.
So this leaves the third project EASSy looking as if it will be the third runner. NEPAD appears to have made little more progress on persuading more African Governments to sign its political protocol. And whilst the members of the EASSy consortium (that still includes KDN and Telkom Kenya) are still moving things forward, there remains a disconnect between the political and commercial ends of the project. If both of the above projects go ahead, there is clearly much less need to build the Mombasa-Djibouti section of the route and it has to be said that both of the above projects have better international connection points.
As if three were not enough, Ethiopia’s ETC has now had its international fibre connection working effectively for two months via Port Sudan and Saudi Arabia. But because it is landlocked and it had endless fruitless arguments with Djibouti Telecom over control of a possible fibre link, it wants to find a second international fibre connection. Therefore it is in serious conversations with both of Kenya’s fibre network operators about connecting to the Mombasa links when they are ready. If this goes ahead, both it and Kenya will then have two international fibre links.
Because the process of getting the international fibre to Kenya has been both confusing and “on-off”, everyone in the market (including customers) have understandably not really grasped the impact of its arrival on their businesses. Until now ISPs and satellite resellers have largely been in the businesses of living on the margin they make
between buying and selling bandwidth.
These margins have been kept high as they have concentrated on selling to comparatively few customers. Ironically it has been a high-price, low volume business where their primary commodity – bandwidth – has always been in short supply, not least because some of them increased their margin by contending it as much as possible. This has meant that bandwidth quality is often variable at best for those not paying “top dollar” for a premium service.
If you argue that international fibre prices should be low price, high volume, then the national business model changes: what’s sauce for the goose is sauce for the gander. Bandwidth becomes cheap and plentiful at a sub $1000 threshold. The margins that can then be charged make it difficult for those who are not operating at volume to stay in business.
However it does now open up opportunities for new services, content and applications that can be sold to customers who should now be paying European prices for real broadband connections (1-2 meg upwards) rather than the paltry 64 kbps they are currently receiving. There are at least 500,000 households in Kenya that are at an income level that make them potential targets for broadband. It would take only half of those households to sign up for there to be the beginnings of a very different market.
The real sign that the market has not “got it” is that some key ISPs are not passing on the information about these soon-to-be cheap prices but are seeking to protect their high margins by telling customers higher prices. A heads-up, guys. The sector is a village and news will get round quickly and we’ll encourage the circulation of this price information. The market’s about to change, get ready to change with it.
At the national level, there is now a third source of fibre capacity. Jamii Telecommunications has signed an agreement with the Kenya Light and Power Company (KPLC) to sell an STM1’s worth of its fibre capacity in Nairobi and Mombasa, with KPLC saying that it will triple its capacity shortly. Two other companies – CTN and Cable Vision – have been granted a licence to sell KPLC’s capacity and it is telling (in terms of the argument above) that both are in the video download and pay-TV business. Not so far afield, Tanzanian power utility TANESCO is currently building out fibre capacity and has invited bids to sell this capacity. Again KDN is poised to make a fibre connection to Tanzania.
However a recent ping on the Kampala-Nairobi route shows that neither KDN nor Telkom Kenya has got its fibre route operational. KDN is promising it will be operational by the end of first quarter 2007 and that prices will be 20% cheaper.
Elsewhere in the market, the new VoIP operators are finding it difficult to get interconnection agreements and to get proper service from interconnect service providers. Telkom Kenya is charging absurdly high prices but has at least reached interconnect agreements. Nevertheless the new fixed wireless operators – Flashcom and Popote – are having
difficulties: customers are unable to receive or make calls to certain countries. Apparently anyone who calls a customer number of these fixed wireless operators from Germany gets a number unobtainable.
Access Kenya’s Yello VoIP service has been aimed at corporates and has attracted 250 customers who generate 120,000 minutes a month. But it has had difficulty getting interconnection agreements with the mobile operators. It made a complaint to regulator CCK in April and became so frustrated that it said it would run an advertisement publicising the
position. Safaricom came back to the table but Celtel refuses to enter discussions, saying that it will do so in its own time.
Kenyan ISPs are under heavy pressure from all the new operators. Flashcom and Popote are taking more money from data than voice at the moment as customers are primarily signing up for cheaper Internet access. Also the introduction of EDGE services by Safaricom is eating into their high-end customers: one ISP’s CEO admitted privately that he
was losing hundreds of customers a month to these new competitors. The challenge for everyone in the market will be whether they can take the soon-to-arrive cheaper international bandwidth and use it to transform the market.
